Most of Bermuda's insurance companies are finding it tougher to make money this year than last but in a challenging second quarter they still managed to generate a collective profit in the billions of dollars.

Falling insurance rates in a softening market have impacted on profits, while investment income from the companies vast pools of capital has declined amid the turmoil caused by the global credit crisis. It's what Axis Capital chief executive officer John Charman has described as a "perfect storm" for the insurance industry.

A Royal Gazette survey of 23 of the Island's top, US-listed insurance and reinsurance companies, showed general trends of falling profits, a fall in the value of gross premiums written and declining investment income. But the combined net income of the 23 still topped $2.83 billion Ace Ltd., which changed the domicile of its holding company from the Cayman Islands to Switzerland last month, but which remains part of the Bermuda market because its principal executive offices are based here, was the top second-quarter performer.

Ace generated record quarterly earnings of $746 million, up 13 percent on the same period last year. The group wrote gross premiums of $5.3 billion, two and half times more than the next highest figure in our survey.

Much of the improvement was attributed to the $2.4 billion acquisition of Combined Insurance Company of America (CICA), which boosted Ace's accident, health and life business, and played a part in the company's 14-percent increase in premium revenue.*t(0,0," ")Class of 2005 reinsurers Validus Re and Flagstone Re also continued their success stories with solid results.

Validus recorded net income of $76 million, up seven percent on the previous year, and wrote $380 million of gross premiums. Its acquisition of Lloyd's of London insurer Talbot boosted its results.

Flagstone, as it continued its global expansion strategy which has given it a presence in Switzerland, Dubai, India, South Africa, Cyprus, the UK and Puerto Rico, saw its profits grow by 185 percent to $42 million.

It was not surprising that the worst performer in our survey came from the troubled financial guaranty industry. What was surprising was that the same sector also managed to provide the second and third highest net income figures for the quarter.

Assured Guaranty's profits grew more than 15-fold to $545 million, to place second, while Primus Guaranty swung to a $262 million net income.

However both companies, like bond reinsurer RamRe ($126 million), attributed much of their profits to unrealised gains in the values of credit derivatives, though Assured could also point to the fact that it has massively boosted its share US municipal business by being one of only two bond insurers to keep its AAA credit rating.

Another financial guarantor, Syncora Holdings Ltd. (formerly known as Security Capital Assurance, or SCA) posted a net loss for the second quarter of $493 million, the worst net income figure of the 23 companies. CEO Paul Giordano resigned on the day the results were announced.

A steep deterioration in the value of the mortgage-linked se*t(0,0," ")curities that Syncora insures was the main reason for the loss and also threatened the company with insolvency. Its policyholders' surplus had reached a deficit of more than $880 million by the end of the second quarter.

But two deals struck late last month effectively kept the company solvent. XL Capital Ltd., the Bermuda-based company that spun off SCA in 2006, agreed to pay Syncora $1.78 billion in cash, plus eight million shares, to write off 98 percent of its reinsurance and guarantee exposure to the bond insurer. The other deal saw Syncora agree to pay $500 million to US bank Merrill Lynch to walk away from $3.4 billion of credit-default swaps.

The former deal also helped XL to draw a line under its problematic relationship with Syncora. XL posted a $238 million profit in the second quarter, down 57 percent on the same period last year. The global business insurer's $1.95 billion of gross premiums written during the three months was second only to Ace in our survey. XL's earnings statement was quickly followed by the announcement that the company will eliminate 47 jobs from its Bermuda headquarters, among the 165 posts being shed worldwide. Additionally 120 vacancies will not be filled.

The redundancies are part of new chief executive officer Michael McGavick's plan to streamline the company's corporate structure and concentrate on its core property and casualty operations.

Overall, underwriting profitability held up well, even in a quarter which saw US natural disasters including flooding, tornadoes, wildfires which caused estimated insured losses of around $6 billion

)Across the board, the companies managed combined ratios a measure that indicates the percentage of each premium dollar spent on claims and expenses at below 100 percent.

Property catastrophe reinsurance specialists IPCRe (10.5 percent), RenaissanceRe (53.5 percent) and Montpelier Re (57.7 percent) were the best performers by this measure. All three companies gained from adjustments to prior-period loss reserves and IPC's profits rocketed by 70 percent to $105.2 million.

The third-biggest company of the 23 by gross premiums, recorded a net loss of $26 million for the quarter, despite the fact that its operating income soared by more than $47 million to $184 million. The net loss came chiefly as a result of the company adopting a new "fair value" accounting method, which meant realised and unrealised losses on investments of $219 million appeared in its net income column.

PartnerRe has adopted FAS 159 completely, while others have adopted it partially or not at all, making comparisons by net income a less reliable means of comparing insurance companies.